Will these two networking stocks rebound?

By Chris Lau for Kapitall.

Investors should not be too surprised that Ciena (CIEN) issued a negative forecast in its quarterly report. Investors reacted negatively after it released its third quarter results, pushing shares down nearly 10 percent. Though the firm met expectations, it now sees uncertainty in its outlook. 

Ciena faces negative headwinds from its customers. International projects may face delays or uncertainties in the quarter ahead. Telecom companies are more cautious with their spending. This is not surprising: when Alcatel-Lucent (ALU) reported quarterly results, it disappointed investors. The firm is facing uncertainties in the IP routing market, while sales in China were weaker than expected.

The move by customers between optical and packet takes time, which means occasional revenue recognition delays for Ciena. For the fourth quarter, Ciena expects revenue of between $570 – $610 million. Gross margin will come in much lower than street estimates. At worst, Ciena’s gross margin could be in the high 30’s. 

Aside from the uncertainties, there is one bright spot for Ciena. Revenue from customers who are not carriers is growing. In Q3, 30 percent of its revenue came from non-carrier infrastructure. The firm expects its 100G board shipments will gain market share over time.

Like Ciena, Alcatel-Lucent is pinning its growth outlook on 100G demand. In the first half of its fiscal year, Alcatel-Lucent shipped 15,000 ports of the 1830 platform to over 480 customers. The firm expects the platform will move towards 200G in the future and after that, 400G.

Risks?

Neither company is for the faint of heart. Carrier and customer spending may fluctuate, which means uneven revenue each quarter. More downside is possible, but will reverse as uncertainties subside.

Click on the interactive chart to view data over time. 

 

1. Alcatel-Lucent, S.A. ( ALU): Provides products, solutions, and transformation services that enable service providers, enterprises, governments, and strategic industries to deliver voice, data, and video communication services to end-users worldwide. Market cap at $9.63B, most recent closing price at $3.37. 

 

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